SMEs access capital through the stock market

Capital markets

SMEs access capital through the stock market


NSE Chief Executive Geoffrey Odundo (left) with his CMA counterpart Wycliffe Shamiah at the launch of the SecondStax portal on November 4, 2022. PHOTO | DIANA NGILA | NMG

Smaller companies listed on the Growth and Enterprise Markets segment of the Nairobi Securities Exchange (NSE) will finally be able to raise funds in the capital markets under updated listing rules by the industry regulator which will see the creation two new segments specially designed for SMEs.

The CMA said in its third quarter Market Strength Report that the proposed changes under the proposed Capital Markets (Securities) Regulations (list of public offerings and disclosures), coupled with crowdfunding regulations based on the recently released investment, will open a new avenue for raising capital for SMEs that have traditionally struggled to access debt from banks.

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The draft regulations, which were submitted for public comment in May, introduced two new market segments known as the SME Fixed Income Market Segment (SME FISMS) and the Small Business Market Segment. and medium-sized enterprises (SMEMS).

The SME FIMS segment will allow small businesses to issue debt securities with an initial offering size of less than 250 million shillings or an amount set by the CMA, while the SMEMS will allow the listing of non-debt securities issued by SMEs.

“Unlike the Primary Investment Market Segment (MIMS) and the Alternative Investment Market Segments (AIMS), companies listed on the GEMS market cannot raise capital despite being listed,” the report said. on the solidity of CMA. “The draft takeover regulations, currently nearing completion, will allow SMEs to raise equity and debt capital for the first time, enabling thousands of SMEs operating today to raise capital via capital markets that were traditionally only accessible to medium and medium-sized companies.

The regulator added that corporate governance requirements for SMEs will be designed to ensure they are proportionate to their size.

The inability of GEMS-listed companies to raise capital through the NSE has partly contributed to the low uptake of the product since its introduction in 2013.

GEMS companies enter the market by IPO, which means they have also suffered from limited liquidity – and therefore poor price discovery – due to the small number of shareholders.

The MIMS segment carries the bulk of publicly traded companies, representing 49 of the market’s 63 stocks.

The AIMS segment, which sits between the primary segment and GEMS in terms of minimum capital requirements, has nine meters while GEMS has five meters listed – which will drop to four if NBV shareholders approve a motion to move to the d segment. main investment.

Home Afrika was GEMS’ first listing in July 2013, and it was expected at the time that the relative ease of listing in the segment would attract more companies to the market, which would provide following a stream of main quotes in the market. road.

However, the expected flow of registrations largely failed to materialize, with the segment attracting only six registrations in a decade.

One of the GEMS companies, Atlas African Industries, was delisted from the stock exchange in April 2019 after experiencing financial difficulties and halting operations.

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